Tips for Applying for a Mortgage
There are a number of ways you can improve your chances of getting approved for a mortgage.
Homeownership is still one of the American Dreams, and the current market has attracted a number of prospective buyers. Low rates, strengthening home values and a stronger labor market have also made purchasing a home more attractive, so if you’re considering the leap toward this investment, there are a number of ways you can improve your chances of getting approved for a mortgage.
1. Improve your credit
Access to credit remains tight, and your credit report and score are strong determinants in whether you are approved for financing along with the interest rate you’re assigned. Improving your score and fixing errors on your report can take months, so it’s best to pull your credit file at least a year in advance of submitting an application. This will give you time to dispute errors and change any money management behaviors that may have a negative impact on your credit.
2. Build your savings
A hefty down payment not only helps move the approval and buying process along, but it can also lower monthly payments over the term of a loan. To avoid being required to purchase private mortgage insurance – a policy that protects the lender in the event that the borrower defaults – you should plan to put down at least 20 percent when you buy a home. Opening a separate savings account and using higher-interest, low-risk savings’ options, such as certificates of deposit, can help you grow your funds.
3. Try pre-approval
Pre-approval means that a lender has already analyzed your finances and credit, and determined the loan amount for which you are eligible. This can help facilitate the buying process when you have chosen a home, as it lets sellers know that you are serious about the sale and have the financial backing to make the transaction. Keep in mind, however, that simply because you have been approved for a specific amount does not necessarily mean you should buy a home for that total. Use a mortgage calculator to determine what you can feasibly afford to pay each month without jeopardizing your other financial goals. Most professionals discourage taking on a mortgage in which your monthly payments exceed 28 percent of your take-home pay.
Buying a home can be a long, but rewarding process. Taking the time to get your credit and finances in order can help with the application process, but may also keep your payments low.
The information contained herein may not represent the views and opinions of Zions Bank or its affiliates and is for general informational purposes only and does not constitute tax, legal, investment or business advice.